Ahram Weekly

Assessing financial sanctions on Hizbullah

Most analysts believe that US sanctions against Hizbullah will have minimal impact, though the US move has spread alarm in the Lebanese banking system, writes Hassan Al-Qishawi in Beirut

Al-Ahram Weekly

The US administration’s imposition of financial sanctions on Hizbullah has stoked much concern in finance and banking circles in Lebanon, who fear that the move will impact the Lebanese banking system. The banking sector is the jewel and the backbone of the national economy at a time when other sectors are in decline, exacerbated by the vacuum in constitutional institutions, most importantly the presidency.

The anxiety is especially keen because Hizbullah is not a party marginal to politics and social life in the country. It is in fact the biggest political force and leads a main coalition that nearly dominates politics in Lebanon.

While Hizbullah holds less than half of the parliament, a series of alliances, weapons, political prevarication, and its penetration of state institutions have made it the strongest political force in the country. Candidates for president — Suleiman Franjieh and General Michel Aoun — are among its closest allies.

The Lebanese political and financial system cannot simply sideline the party and its allies and supporters in search of a secure place in the global financial order. That could send the country into a tailspin, especially considering the control Hizbullah and the Shia Amal Movement exercise over internal security. They hold a monopoly on weapons in mixed Sunni-Shia areas, especially Beirut, Lebanon’s financial capital.

Moreover, Shia capitalism, like Christian and Sunni capitalism, has become a vital part of the economy. But at the same time, the Lebanese financial system — one of the most open to the world — cannot ignore US sanctions, unless it wants to find itself sanctioned in turn.

In this context, the Lebanese banking system, led by Central Bank Governor Riyad Salame, and in conjunction with Nabih Berri, speaker of the parliament and also leader of the Amal Movement, a Hizbullah ally, is attempting to alleviate the impact of the sanctions on the Lebanese and the Shia community.

It was reported that Finance Minister Ali Hassan Khalil, a leading member of Amal who is close to Berri, would head to Washington to discuss the matter and meet with officials from the International Monetary Fund, the World Bank and the US Treasury. Preparations for the meetings are currently underway in coordination with the US Embassy in Beirut.

Informed sources say that Cyprus is acting as a liaison between Lebanon and the US, interceding not necessarily to have the sanctions lifted, but at least to relieve the financial onus that will touch not only Hizbullah but also numerous parties. Observers say that Hizbullah’s financial transactions are conducted largely outside the official banking system, with the exception of party ministers and MPs. Those expected to be most harmed are Hizbullah supporters, especially Shia businessmen.

Ali Al-Amin, editor of the Janubiya website, which covers southern Lebanese affairs, downplayed the impact of the US sanctions on the flow of Iranian funds to Hizbullah. He said that both Iran and Hizbullah faced years of sanctions and have long experience in moving funds outside official banking channels, including by planes into Beirut airport, given that bodies close to Hizbullah dominate the airport. (One of the main drivers for Hizbullah’s push into Beirut on 7 May 2008 was the Lebanese government’s dismissal of the head of security at Beirut airport, who was close to Hizbullah.)

“The sanctions will be felt less by members themselves than the party’s supporting or surrounding structure, which will become more careful about donating to Hizbullah, especially Shia big businessmen and investors,” Al-Amin told Al-Ahram Weekly.

He pointed out that Hizbullah’s influence on the ground and within Lebanese state bodies gives it space to manoeuvre somewhat freely, circumventing international strictures on Lebanon, but that banks offer no leeway because the money must pass through the US.

Al-Amin said that the real problem for Hizbullah’s finances is the sharp decline in Iranian oil revenues, as well as Iran’s involvement in the wars in Yemen, Iraq and Syria, and Hizbullah’s increasing military expenditures in Syria. He added that he learned that last month salaries were delayed.

In addition, prior to the Syrian crisis, Hizbullah offered aid to various circles of supporters and allies, but this assistance has declined. Nevertheless, said Al-Amin, “On the strategic level, for Iran, Hizbullah is not an ordinary organisation. It’s the pearl in the Iranian crown, Iran’s magic weapon in the region. It will not allow the party to go unfinanced, no matter how much it hurts economically, because the decline of the party due to funding means the decline of Iran’s advancing position in the region.”

While the Lebanese media discusses the financial crisis facing Hizbullah due to the sanctions, coupled with declining oil revenues from Iran and increased military costs in Syria, Lebanese statistician Mohamed Shams Al-Din believes that US sanctions are superficial and will have only a minimal impact since Hizbullah moves cash funds from Iran to Beirut through the airport, or via Syria. In addition, Hizbullah owns much private investment in Lebanon.

Shams Al-Din told the Weekly that during the Israeli war on Lebanon in 2006, Hizbullah compensated refugees and displaced persons in cash, to avoid banking channels.

“I’ve noticed no decline in Hizbullah’s financial capacities, even after the American sanctions and falling oil prices,” he said, “because Hizbullah’s budget is tied to the Revolutionary Guard, and the budget of the Revolutionary Guard is not affected by Iran’s situation. Intelligence agencies are typically not affected by crises.”

He noted that what had been affected were some of the party’s social institutions that receive support form Iranian institutions other than the Revolutionary Guard, such as the Shahid Foundation, which takes care of 4,060 children. Hizbullah Secretary-General Hassan Nasrallah himself called for civic support for the initiative, which came from businessmen sympathetic to Hizbullah.

Speaking to the possibility that the pro-Hizbullah Shia community will be affected, Shams Al-Din said this is a source of some concern, but is not a major issue. There are many ways to overcome the effects of sanctions, based on a Lebanese-American consensus, he said. He added that in the past Washington asked for the shutting down of the Canadian-Lebanese Bank, which was run by a group close to Hizbullah and Amal. It was ultimately sold to another bank in an agreement between Lebanese banking authorities and Amal leaders.

A similar controversy erupted over the Africa and Middle East Bank, which was owned by a pro-Amal Shia family that was allegedly involved in money laundering. The bank’s board met, the family relinquished its share, and the bank administration was nominally changed.

On the impact of the sanctions on Lebanese Shia expatriate communities, especially in Africa, part of which is said to be linked to Hizbullah, Shams Al-Din said it would be minimal. Shia assets from Africa are already moved to Lebanon by plane, since transferring foreign currency is banned in most African countries.

He noted that a Libyan plane crashed into the sea on 25 December 2003, carrying Lebanese from Africa to Lebanon for the New Year. Hundreds of millions of dollars in cash was reportedly on board the plane as well.

Shams Al-Din concluded that the sanctions are merely cosmetic because the Americans do not want funds for Hizbullah coming through banking channels after the lifting of sanctions on Iran. The sanctions are also designed to appease Israel, which continues to face a hostile Hizbullah despite the US rapprochement with Iran. The Americans themselves know all of this.